In 2016In 2016

In 2016, countries in the East-Asia region started implementing the 2030 Agenda for Sustainable Development.1 In that Agenda, it is recognized that sustainable development involves much more than just economic growth; through the Agenda a broader concept of well-being is promoted, including the focus being given to social inclusiveness and environment sustainability. Managing economic challenges and promoting economic dynamism, nevertheless, are crucial elements for the effective pursuit of the 2030 Agenda.
The economies in the East-Asia region will need not only to complement demand management measures with robust supply-side structural reforms but also enhance social protection measures. The region’s policymakers will also need to make a conceptual transition.
Rather than focusing solely on a growth-centric development framework, they should internalize the social, environmental and governance dimensions of development in a holistic manner. In this context, the Economic and Social Survey of East-Asia and the , or simply the Survey, published in April 2016, highlighted that the pace of economic expansion and productivity gains in East-Asia and the have slowed considerably in recent years, and contained an examination of their implications for eradicating poverty, reducing inequality and improving employment prospects.
Issues related to a rising middle class and rapid urbanization was explored as examples of multifaceted challenges to sustainable development. To bolster economic growth in the light of fragile global economic conditions, it was argued in the Survey that higher priority be given to stimulating domestic and regional demand through levels of productivity and increases in real wages.
Just as strengthening productivity will contribute to the achievement of many of the Sustainable Development Goals, investing in the Goals will nurture growth in productivity, creating a virtuous cycle between sustainable development and inclusive economic growth.
In this Year-end Update of the Survey for 2016, these themes are picked up, and stock is taken of recent economic developments while their implications are assessed from a sustainable development perspective. It has become clear that, despite a sluggish global economy and weaknesses in trade, the region’s economies are showing resilience, and fiscal and structural reforms are gathering momentum.
Although there had been significant volatility in financial and commodities markets in 2015 and early 2016, such conditions stabilized in the second half of 2016, and the outlook for 2017 seem broadly positive. Low inflation allowed further monetary easing, and favorable financing conditions along with a proactive fiscal stance facilitated greater social and infrastructure spending and broader structural reforms.
The region’s developing economies are projected to grow by 5 per cent in 2017, which is in line with the forecast reported in the Survey for 2016. Private consumption is growing at a steady pace on the back of low inflation, although high household debt and stagnant real wages in some economies remain a concern. Several countries are supporting economic growth through lower interest rates but at the same time increasing measures to curb excessive credit and increases in housing prices and to facilitate deleveraging and restructuring in certain corporate and banking sectors.
Private investment is less forthcoming given overcapacity and deleveraging challenges in some sectors, but leading indicators point to a gradual recovery. Similarly, while industrial production remains subdued partly due to weak external demand, there are positive signs of economic upgrading, with higher growth in such sectors as high-technology and equipment manufacturing.
Some macroeconomic risks for 2016 noted earlier seem less significant, such as oil prices, while others remain, such as the accumulation of private debt, and new ones have emerged, such as Brexit in Europe and uncertainty following the United States election. Thus, bouts of financial volatility could re-emerge ? including those due to external policy uncertainties in major economies ? as well as vulnerabilities on the domestic front, such as those on corporate and bank balance sheets.
External-1 General Assembly resolution 70/1.2 Economic and Social Survey of East-Asia and the 2016: Year-end Update demand is likely to remain weak; there is a concern that prolonged weakness in global trade could be a drag on productivity growth and the integration of developing countries into global and regional value chains.
Trade protectionist measures and sentiments, which are already on the rise, may increase further, harming export-oriented East-Asian economies and negatively affecting private investment, as efficiency gains and dissemination of technological innovation associated with trade would suffer. Nevertheless, overall stable economic conditions provide an opportunity to make progress on the productivity and inclusiveness fronts.
While the region continues to lead global economic growth, output expansion has not been translated into commensurate increases in decent jobs in a number of countries. More than 1 billion workers in the East-Asia- region are in vulnerable employment, often without access to social or legal protection.
Labor productivity remains low in agriculture and small and medium-sized enterprises, and industry’s capacity to absorb labor seems limited. This situation has contributed to rising income inequality, which can be reinforcing, and thus can undermine social cohesion and adversely affect long-term growth.
As the region undergoes further structural transformation, there is a need to match efforts to lift productivity and innovation with measures to enhance worker skills and social protection. Moreover, appropriate policies are needed to ensure that productivity gains derived from technological progress are passed on to workers through higher real wages.
Fiscal policy can and should play a proactive role in supporting domestic demand and in meeting long-term development priorities. While ensuring long-term fiscal sustainability, there has to be greater emphasis on the quality and composition of public expenditures, rather than simply on aggregate budget deficits and public debt levels.
Indeed, fiscal policy in the region has been largely countercyclical and expansionary. Governments are taking advantage of low borrowing costs and new regional cooperation initiatives to scale up infrastructure investments. Fiscal institutions are being improved, with China moving away from off-budget spending and implicit guarantees and India taking a major step towards putting into effect a nationwide goods and services tax.
Public infrastructure outlays are deemed particularly effective in addressing structural bottlenecks in the current environment of weak external demand, weak private investment, low borrowing costs and benign inflationary pressures.
Tax policy can be quite effective in nurturing a more balanced society with less extreme inequalities. The population-weighted Gini coefficient in the region, based on household income estimates, increased by 11 points, from 37 to 48, between 1990 and 2014, an increase of almost 30 per cent in less than three decades. Similarly, wealth inequality is also at very high levels in a number of countries in the East-Asia- region.
Taxes ? in particular progressive personal income tax ? can be a main policy tool for direct redistribution of income and wealth in a society. Taxes can also provide critical public revenues for financing public investments in health care and education, as well as for funding social protection and welfare schemes.
The East-Asia-region as a whole has one of the world’s lowest tax revenues levels, at 17.6 per cent of GDP, with a relatively low share of direct taxes in the general tax mix. Better economic governance, as reflected, among other things, in the effectiveness and integrity of public institutions, is a fundamental element in managing structural transformations, undertaking progressive tax reforms and moving towards a sustainable development path.
Effective economic governance can go a long way in enhancing investment that is currently weak, promoting productivity and innovation that underpins sustained economic growth, accelerating poverty reduction and mitigating inequalities, including through progressive tax reforms, all of which measures need consistent policy attention.
The rest of the publication is organized as follows: section 1 contains an assessment of economic growth performance, along with a discussion of the near-term outlook and prevailing and emerging risks. In section 2, the weak prospects of job creation are discussed in the context of technological progress, and highlights are given on the importance of social protection.
Section 3 contains reviews of inflation trends and monetary policy considerations. Section 4 provides an update on financial market conditions and a discussion of issues surrounding private debt. Section 5 highlights aspects of fiscal policy, underscoring its importance for supporting economic growth and improving development outcomes.
In the last two sections, there is an examination in some detail on two medium-term priorities: the issue of rising inequality and role of progressive taxation in stemming that trend; and the importance of effective economic governance for fostering innovation, investment and inclusive development.